Most divorces involve some level of property division. Splitting up retirement funds and pensions can become particularly tricky. In the best-case scenario, the couple can agree on how to divide their assets. But in most cases, state law or personal conflicts require a court to decide who gets what. Understanding what happens to pensions in a divorce can be valuable in preparing for divorce and planning for the future.
Pension Division in Equitable Distribution Versus Community Property
Generally, pensions earned during the marriage are split 50/50, while pensions earned before marriage and after you file a divorce petition are considered the sole property of the earner. However, state law plays a vital role in the ultimate handling of pension funds in divorce.
In the U.S., marital property ownership is governed by equitable distribution or community property laws. In community property states, marital property, including pension, is divided in half. Nine states—California, Arizona, Idaho, Nevada, Louisiana, New Mexico, Washington, Texas, Wisconsin—and Puerto Rico follow community property guidelines. Alaska, South Dakota, Kentucky, Florida, and Tennessee offer couples a choice as to whether they want property to be treated as community property.
All other states, including New York, apply equitable distribution of property. In equitable distribution states, pensions will be divided according to what a judge deems “equitable” or fair. To make this decision, a judge will start at a 50/50 baseline, and then make adjustments from there by weighing unique marriage factors.
Factors a judge may consider in deciding equitable distribution of pensions include:
- Length of the marriage: In general, the longer the marriage, the greater the odds of receiving a 50/50 pension distribution.
- Non-economic distributions: The more a spouse has contributed to the other spouse’s pension earnings, the more likely they will receive half of the pension. For example, if both partners work full-time and contribute little to each other’s earnings, the earner is likelier to keep a large portion of their pension. However, suppose one partner does not work during the marriage, dedicating their time to caring for the household and children. In that case, this is considered a significant contribution to the earnings of the other partner and would likely result in a 50/50 division of pension.
- Marital misconduct: Depending on whether your state allows no-fault grounds for divorce, spousal abandonment, cruelty, or adultery may or may not be considered in the pension division. In addition, some judges may consider the dissipation of marital assets – whether a spouse wasted the marital finances on excessive spending or gambling. In this case, a spouse may be able to keep a larger portion of their pension in repayment for the funds the other partner wasted.
New York Divorce Pension Payment Distribution
New York divorce courts often apply the Majauskas formula in dividing pension, giving half of the part of the pension earned during the marriage to the ex-spouse. This formula divides the amount of accrued service credit during marriage by the total service credit upon retirement, then splits the result in half to offer one-half of the marital share of the pension to each spouse.
But the Majauskas formula isn’t always applied. Depending on the court and factors involved in the divorce, the judge may award an amount using a modification of the Majauskas formula, a flat percentage of the pension, a flat monthly payment amount, or an amount based on a hypothetical pension benefit.
Collecting Pension Payments After Divorce
After a judge has decided on pension division, the pension will remain intact until you retire. At that point, you will receive your share of the court-awarded pension payments, and your ex will receive their share.
However, if part of your pension has been awarded to an ex-spouse, you may need to prepare a Qualified Domestic Relations Order (QDRO) at the time of divorce. Because the Employee Retirement Income Security Act of 1974 (ERISA) forbids pension payouts to anyone other than the person who earned the benefits, QDRO approval by a court is required to override ERISA and allow pension payments to be released to your ex. QDROs may also exempt the receiving spouse from any tax ramifications.
Exceptions to Pension Division in Divorce
Some forms of government and military pensions may follow different rules in marital property division. For example, under the Uniformed Services Former Spouse Protection Act (USFSPA), the Department of Defense cannot directly distribute a military member’s retirement pay to a former spouse unless they were married for at least ten years with at least ten years of overlapping military service. If these criteria aren’t met, the pension earner may have to make other arrangements to ensure the ex-spouse receives their court-ordered pension allotment.
Prenuptial agreements can also protect your pension in divorce. Prenups should always address pensions. A pension waiver may be required without a pension provision, which can lead to legal challenges. Couples should carefully draft the pension provision of a prenup to account for state pension laws and regulations, ERISA requirements, and pension program policies.
Other Ways Divorcing Spouses Can Divide Pension
Couples going through divorce can also consider alternatives like informal agreements or mediation to divide the marital assets, saving the time, money, and stress of going to court. For example, you might agree to offer your spouse another asset equal to your pension, such as real estate. Or, if you both have retirement savings that are relatively equal in value, consider leaving pension distribution out of the divorce entirely.
New York Divorce Retirement and Pension Specialists
If you are facing divorce, your spouse may be able to claim a portion of your pension. To protect your retirement payments, you should become familiar with your state's retirement plan, prenuptial provisions, and marital property laws. Consider hiring an attorney who specializes in savings and retirement after divorce.
Our New York divorce attorneys team can help you protect your assets, ensure fair pension distribution, draft prenuptial agreements, and provide other services for a stress-free retirement.